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Rosenberg On The Debt Ceiling

Tyler Durden's picture


When it comes to the debt ceiling, we have heard everyone and the kitchen sink's opinion on this issue at this point. Yet one person who has been silent so far is the original skeptic David Rosenberg. Summarized: "Despite the fear mongering, the U.S. government is not going to default.
Any backup in bond yields from a failure to cobble together a deal will
drive market rates down because of the deflationary implications from
the massive fiscal squeeze that would ensue at a time of a huge 5%
output gap. Even if there were to be some sort of "buyer's strike" if
the U.S. were to be defaulted, rest assured that the Fed would step in
aggressively." Obviously to a mega bond bull like Rosenberg, this is the only possible outcome. After all an alternative would mean the central planners have failed, and the most artificially inflated security in the history of man: US bonds, which are only there because they are the "best of all evils" was enjoying an extended "ignore the emperor's nudity" sabbatical... which alas does not change their evilness, nor is this equilibrium stable once more and more realize it is all about gold at the end of the day. And as yesterday demonstrated when existential fear grips the market, the impossible does happen, and both bonds and stocks can sell off, and in the process lead to all time records for gold. Bookmark July 14: it is a harbinger of what is coming.


Yesterday was one of those rare days where bond yields went up the same day equity prices went down. The two asset classes have been inversely correlated so more days like yesterday are very significant.

I also think you can trace the decline in the major averages yesterday to the time that Geithner spoke when he stressed that August 2nd is the deadline. There is no way out. The rating agencies are saying that the U.S. will face multiple downgrades. I think that a deal will get done at the last minute but it's too late in the game for anything substantial to be attached to a debt ceiling increase. Obama should have offered up what he's suggesting now — big deficit reduction and entitlements on the table — when he unveiled his budget last January. He has no credibility and is playing politics. He proposes large-scale budget gap declines now but with revenue raising measures he knows the hard core GOP will never accept. So he'll blame them. The GOP is playing games of their own because there is no way to redress the fiscal problem with spending cuts alone. Eric Kantor has to be silenced. I think McConnell's idea of giving Obama the authority to raise the debt ceiling unilaterally is the first sign that GOP intransigence is waning. But in the end, it all will come down to the rank and file in the House.

The markets, like most of us, thought this was all posturing and that a deal would be cut by now. Shades of '95. But it's getting late. I think what has investors on edge is the leak that Obama walked out of a meeting with the GOP leadership (aimed at Kantor) and said "enough is enough". Geithner yesterday did not pull a Bob Rubin and say he had another rabbit in the hat. The two sides still appear far apart and more bent on who is going to pay the price in 2012.

Now, the U.S. is hardly going to default in its own currency despite what the rating agencies say or do. I also believe there are constitutional hurdles with not meeting bond repayments. But the message yesterday from the markets — stocks, bonds and the U.S. dollar — is that they are now paying much more attention to this file than they were before. At the margin, investor fear will always lead to raising cash and a cutback in duration.

So there is a risk, even with the weak economy, that bond yields go higher near- term and possibly much higher until this thing is resolved. This then becomes a buying opportunity for longer-duration bonds because Bernanke will act to cap rates, though only after they have risen sharply enough to undercut the stock market. He already hinted loudly that more quantitative easing is on the table and if push comes to shove, he'll monetize the entire deficit.

I can understand that earnings are paramount but frankly I have a hard time believing, Google aside, that on net, profits will perform that well in the current reporting season since I have strong reason to believe that business productivity sagged in Q2. Aside from that, keep an eye on the bond market but remember it was sharp spasms both in 2000 and 2007 that ultimately undermined equity valuation and doomed the economy.

The bottom line is this. Despite the fear mongering, the U.S. government is not going to default. Any backup in bond yields from a failure to cobble together a deal will drive market rates down because of the deflationary implications from the massive fiscal squeeze that would ensue at a time of a huge 5% output gap. Even if there were to be some sort of "buyer's strike" if the U.S. were to be defaulted, rest assured that the Fed would step in aggressively. Perhaps the least-good result for bonds would be a passage of the debt ceiling without at least some down payment in terms of budget austerity. But that is only a matter of timing since putting out the fiscal fires will surely be the dominant campaign theme in the lead-up to the 2012 election.

A far bigger question is what happens next. Will S&P hold true to their word and cut the US on a small deal? And if there is real austerity, even $1 of it, by implication it means no more additional fiscal stimulus period. The economy can not grow without a fiscal or monetary boost. So if D.C. is deadlocked on fiscal stimulus for the next decade, do people really think Bernanke will admit defeat and not print more money to stimulate the "economy" even more?

Source: Gluskin Sheff


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Fri, 07/15/2011 - 14:27 | 1460333 Mae Kadoodie
Mae Kadoodie's picture is not money.  It's only a tradition.

Fri, 07/15/2011 - 14:29 | 1460341 Xibalba
Fri, 07/15/2011 - 15:03 | 1460453 JW n FL
JW n FL's picture

Yeah.. owning the Belt Way Gang is Another Tradition! that does NOT get a lot of air time!

Fri, 07/15/2011 - 16:50 | 1460894 MachoMan
MachoMan's picture

you're gonna post the same shit I did and not give a hat tip, c'mon dude, this is the interwebs

Fri, 07/15/2011 - 15:23 | 1460518 sasebo
sasebo's picture

Who said? The same guy who said subprime was contained? He's smoking used rubbers. Don't pay any attention to him. 

Fri, 07/15/2011 - 14:28 | 1460334 inkarri9
inkarri9's picture

This is from a speech Obama made in 2006:

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies.

Over the past 5 years, our federal debt has increased by $3.5 trillion to $8.6 trillion.That is “trillion” with a “T.” That is money that we have borrowed from the Social Security trust fund, borrowed from China and Japan, borrowed from American taxpayers. And over the next 5 years, between now and 2011, the President’s budget will increase the debt by almost another $3.5 trillion.

Numbers that large are sometimes hard to understand. Some people may wonder why they matter. Here is why: This year, the Federal Government will spend $220 billion on interest. That is more money to pay interest on our national debt than we’ll spend on Medicaid and the State Children’s Health Insurance Program. That is more money to pay interest on our debt this year than we will spend on education, homeland security, transportation, and veterans benefits combined. It is more money in one year than we are likely to spend to rebuild the devastated gulf coast in a way that honors the best of America.

And the cost of our debt is one of the fastest growing expenses in the Federal budget. This rising debt is a hidden domestic enemy, robbing our cities and States of critical investments in infrastructure like bridges, ports, and levees; robbing our families and our children of critical investments in education and health care reform; robbing our seniors of the retirement and health security they have counted on.

Every dollar we pay in interest is a dollar that is not going to investment in America’s priorities.

Senator Barack Obama
Senate Floor Speech on Public Debt

March 16, 2006

Fri, 07/15/2011 - 14:32 | 1460354 Tyler Durden
Fri, 07/15/2011 - 14:34 | 1460362 Piranhanoia
Piranhanoia's picture

He seriously doesn't want to be "it".

Fri, 07/15/2011 - 14:39 | 1460379 QuantTrader
QuantTrader's picture

Cite your source or it didn't happen

Fri, 07/15/2011 - 14:41 | 1460384 Sudden Debt
Sudden Debt's picture

MAD magazine june edition 2006.

or was it Hustler...

Fri, 07/15/2011 - 15:32 | 1460557 redpill
redpill's picture

The real joke of all this is that the debt ceiling is referred to in these careful and foreboding terms, as if it is some external force threatening to financially invade our land of calm and prosperity.  

The reality is, the executive branch was never supposed to be in charge of the decision to issue debt to begin with (one can certainly see how it has gotten out of control).  The Constitution specifically provides that responsibility to Congress, and when they ceded that responsibility in 1917 to the executive branch, it was a major disservice to American taxpayers.

The "debt ceiling" was the only check left on complete dictatorial control by the executive branch over bond issuance.  Fast forward to today and there doesn't seem to be much appreciation for the importance of having a cap on what the Executive branch can borrow.  But this cap is vital, because it's all we have left.  AND IT IS WORKING AS INTENDED AS LONG AS THEY DON'T RAISE IT.  

We don't have a debt ceiling just so we can keep increasing it perpetually in a sick downward spiral of future obligation.  If any of these asshole politicians were actually interested in making our national finances sustainable they would leave the cap right where it is.  ONLY then will everyone in Washington DC be forced to make the choices necessary to get us back on a fiscally sound track.  It does NOT mean we would default.  But to avoid default we would need to prioritize interest payments and we would have to pay back some DEBT before we could borrow more of it.  Sounds like a plan to me.


Fri, 07/15/2011 - 21:18 | 1461415 boooyaaaah
boooyaaaah's picture

In 1776 did we care what the world thought?

What is a rating agency?

Aren't they the ones that did not see the subprime train wreck?

And all of you Union quasi commy capitalism is bad ZH readers --- you and we know who I am talking about. Where do you think your pensions your defined benifit payoffs your free health care wher do you think the value of these will go when the Bernack prints or rather releases the flood of already printed $$$ on the American economy.

Your only hope is for a cleansing recession or even depression because a hyper inflation will wash all of your dollar denominated benifits down the drain.

So please Union Workers stop your fearless leader's spending --- he will ruin us all and you have the most to lose.




Fri, 07/15/2011 - 16:07 | 1460722 Uncle Remus
Fri, 07/15/2011 - 18:17 | 1461091 boricuadigm-shift
boricuadigm-shift's picture

Right Source!  Bingo! :-)

Fri, 07/15/2011 - 14:28 | 1460339 Clayton Bigsby
Clayton Bigsby's picture

"US bonds, which are only there because they are the "best of all evils"... which alas does not change their evilness" - awesome

Fri, 07/15/2011 - 14:49 | 1460406 brandy night rocks
brandy night rocks's picture

The ascription of a moral alignment to a financial instrument leads me to question the objectivity of the analysis.

Fri, 07/15/2011 - 14:54 | 1460422 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

How about "ethical" alignment?


Tuco Benedicto Pacifico Juan Maria Ramirez

Fri, 07/15/2011 - 15:04 | 1460457 JW n FL
JW n FL's picture

how about Aztlan?

Fri, 07/15/2011 - 18:03 | 1461068 DosZap
DosZap's picture


Ignore them, their just dumb ass Mexicans who think they own America, after getting a lot of free stuff,like welfare, and educations, and free jobs at Mickey D's.

For decades.Esp in Mexifornia.

Fri, 07/15/2011 - 22:12 | 1461484 CompassionateFascist
CompassionateFascist's picture

Hard to ignore the fact that the mayor of L.A. is "ex"-Azatlan member, and the "wise Latina" on the SC is "former" Board of Directors member of La Raza - as in: "Kill the Gringos".

Fri, 07/15/2011 - 15:17 | 1460497 TaxSlave
TaxSlave's picture

The ascription of a moral alignment to a financial instrument leads me to question the objectivity of the analysis.

Question the objectivity all you like.  How objective is the toilet slave who is held in bondage in perpetuity to these bonds?

Obviously, an inanimate object cannot be moral or immoral.  But if it is a tool designed and used explicitly and exclusively for evil, like a germ warfare munition, we can understand a little slippage in terminology -- while understanding that it exists only to serve evil.

A financial instrument that finances the enslavement of a people is a tool of evil.  And every sucker that loans money to government in the hopes that the government will extract the toil of its citizens to make them rich deserves to lose every last dime of it, and deserves punishment for funding the system that does so, for the same reason I'd happily break the knees of the guy that buys stolen tools.

It's not my debt.  And I'm not paying it.

Fri, 07/15/2011 - 14:33 | 1460344 Zedge Hero
Zedge Hero's picture

Debt ceiling, credit reviews, Bernank, they all helped the rise of Gold this week to all time highs.  This weeks newscast is all about Gold and the FED, along with the Ron Paul belittling of Bernank

Fri, 07/15/2011 - 14:31 | 1460351 Fortunes Favor
Fortunes Favor's picture

AUD/JPY Struggles Imply Risk Off / Liquidity Drain: Not Good For Equity Prices

Fri, 07/15/2011 - 15:22 | 1460515 Tinsu
Tinsu's picture

Did I read it correctly that they still are looking at 1360 yearend?

Fri, 07/15/2011 - 14:33 | 1460357 Piranhanoia
Piranhanoia's picture

DeBoer's told me diamonds are for ever?  or was that Harry Winston Smith?  They told me the gold was worth exactly this much at the time, same thing with the diamonds.  Then they told me how much to put them together and make something nice. That's when I puked. They said it happens all the time.

Fri, 07/15/2011 - 14:35 | 1460366 lieutenantjohnchard
lieutenantjohnchard's picture

if the worst happens wonder if the fed will backstop jpm? i guess they'll have to given that jpm is the treasury.

jpm: $39.51

Fri, 07/15/2011 - 14:52 | 1460411 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Yes, JPM will backstop itself!



Fri, 07/15/2011 - 14:55 | 1460427 lieutenantjohnchard
lieutenantjohnchard's picture

good point.

Fri, 07/15/2011 - 14:38 | 1460371 rubearish10
rubearish10's picture

A US default would not be Armageddon, it would just be the beginning of a new era. Think of Y2K. "We're still here you bastards"!

Fri, 07/15/2011 - 14:39 | 1460375 centerline
centerline's picture

That was one big nothing-burger.

Politics = theater = blah blah... debt ceiling will be raised.  Whatever.  Don't go to far out on that limb there Rosenberg.




Fri, 07/15/2011 - 14:39 | 1460377 Uncle Remus
Uncle Remus's picture

there are constitutional hurdles with not meeting bond repayments.


This is hilarity, ensuing.

Fri, 07/15/2011 - 14:40 | 1460382 topcallingtroll
topcallingtroll's picture

Ok everyone relax.

Obama just went back on his threat not to sign a temporary deal. He also went back on his threat not to sign a deal unless there were tax increases too.

Now that obama has backed down it is smooth sailing.

Fri, 07/15/2011 - 14:42 | 1460387 russwinter
russwinter's picture

Once again the real issue is drown out by the debt ceiling facade. S&P said it best, the key word being "foreseeable".. Moodys use the language "in the next few years". No kicking the can down the road here:

“We may lower the long-term rating on the U.S. by one or more notches into the ‘AA’ category in the next three months, if we conclude that Congress and the Administration have not achieved a credible solution to the rising U.S. government debt burden and are not likely to achieve one in the foreseeable future.

Fri, 07/15/2011 - 14:56 | 1460393 Re-Discovery
Re-Discovery's picture

I heard Rosie recomend Gold Oil and Income generating Equities this morning.  Nothing about US treasuries.  I think he is a recovering deflationist now that he realizes that Fed will print forever.  I see a shift in his thinking.  We should deflate, but we wont be allowed to until no one can stop it.

Fri, 07/15/2011 - 14:44 | 1460395 global
global's picture

He's absolutely right.  The market is by its very existence net long governement bonds in size.  The only way to reduce the size of the market is for the Federal Governement to start running a surplus and retire debt, or default.  Its possible for there to be a buyers strike on new debt, but existing debt will be rolled by the current owners or they risk causing a default and detonating themselves.  Any bank not able to do this will be hastily replaced by the Fed.

Fri, 07/15/2011 - 14:55 | 1460426 Re-Discovery
Re-Discovery's picture

One thing I have always wondered in all this "who' going to buy the debt" debate is what about the thousands of funds who are essentially required to buy treasuries by organizational prospectus during their 'risk off' phase?  A loss of AAA would change this but it would take something that extreme.  Otherwise, there will always be buyers.

Fri, 07/15/2011 - 14:58 | 1460442 centerline
centerline's picture

At what price though?  That is the rub.

Fri, 07/15/2011 - 15:01 | 1460448 global
global's picture

At the price they would like to mark-to-market the rest of their book.

Fri, 07/15/2011 - 15:02 | 1460451 Re-Discovery
Re-Discovery's picture

Treasuries are traditionally anti-stocks.  It is historically the anti-correlation.  When UST yields widen and stocks are down, you will know the shitstorm has begun.  US capital flight.

Fri, 07/15/2011 - 14:48 | 1460399 Temporalist
Temporalist's picture

"I also believe there are constitutional hurdles with not meeting bond repayments."

What that ancient piece of paper?  Since when has the Constitution mattered in the last 50 years?

Fri, 07/15/2011 - 14:51 | 1460409 Buckaroo Banzai
Buckaroo Banzai's picture

The endgame of total monetization has begun.

Fri, 07/15/2011 - 14:57 | 1460436 centerline
centerline's picture

Seems that way.  Events are beginning to accelerate, stakes are being raised, and the blame game is warming up as expected.

Fri, 07/15/2011 - 14:52 | 1460414 ABG LINE
ABG LINE's picture

Rosenberg: "Blah, Blah and Blah"

You're boring, man.

Fri, 07/15/2011 - 15:10 | 1460439 Youri Carma
Youri Carma's picture

Don't agree with Rosenberg cause in fact the US allready defaulted with the beginning of QE. Or the US is gonna default soon with the debt ceiling shenanigans which is highly unlikely or Beranakesan will start QE3 which will have the same result only in a much slower process later.

Either way the US defaulted.

Fri, 07/15/2011 - 14:58 | 1460440 throughthewire
throughthewire's picture

Don't be the last to get aboard the treasury bubble. The countdown is on and engines are beginning to fire.

Fri, 07/15/2011 - 15:09 | 1460466 gwar5
gwar5's picture

Somebody needs to silence Obama on debt ceiling talks. The house makes all the spending bills. Give Obama a bill at the last minute to either sign or veto. We don't need his approval beforehand.

Obama's Johnny-come-lately rhetoric and lack of budgets for the last 3 years is stupefying. His 1.5 yearly deficits and the fact that it's Obama's experts that have all left in dismal and complete failure are more proof he has any fiscal credibility.

Obama needs to take his own 2009 advice and 'sit down shut up and get out of the way'. The current congress was elected to clean up the mess he made his first two years.

Fri, 07/15/2011 - 15:15 | 1460483 CrashisOptimistic
CrashisOptimistic's picture

The Senate won't pass it.

The only question about the whol thing not yet answered is will the House GOP cave and sign onto the McConnell plan.

But more deeply, the real issue is who came to the negotiations for what purpose.  Obama arrived to get re-elected.  McConnell arrived to try to become Majority Leader.

The House GOP arrived to address the problem.  They are bomb throwers.  They were elected to throw bombs and about, oh, a good 40% of them don't care if they are not re-elcted.  The rest do care, and they were sent there to throw bombs.  They will throw them or be removed in a primary.

That's the key to the whole matter.  2/3 of the people in the room are oblivious to the world having changed.  They are still playing old school politics.  Only the House GOP knows the world has ended.

Now that's not to say their proposed solution is correct.  That's just asserting that only they showed up to do something more than keep the train wheels turning .

Fri, 07/15/2011 - 15:15 | 1460491 gwar5
gwar5's picture

Somebody needs to silence Obama on debt ceiling talks, not Cantor.

Congress makes the spending bills. Hand Obama a bill at the last minute for him to sign or veto. If he vetos it, the consequences are his. Don't need Obama's approval.

Obama's Johnny-come-lately rhetoric and lack of budgets for the last 3 years is stupefying. His 1.5 yearly deficits and the fact that it's Obama's experts that have all left in dismal and complete failure are more proof he has any fiscal credibility.

Obama needs to take his own 2009 advice and 'sit down shut up and get out of the way'. The current congress was elected to clean up the mess he made his first two years.

Fri, 07/15/2011 - 15:16 | 1460493 sasebo
sasebo's picture

All we need is a few Austrian economists (Ron Paul for president?) to replace the dumb ass Keynesians like The Bastard Bernanke,  Goofy Geithner, Osama Obama, etc.

Fri, 07/15/2011 - 15:23 | 1460521 r101958
r101958's picture


Fri, 07/15/2011 - 15:17 | 1460496 Bob Sacamano
Bob Sacamano's picture

Fact is Treasuries have rallied as the debt ceiling "crisis" has intensified.  Which makes it more difficult for ceiling raisers to say the world will end for the US government if we don't raise the ceiling. 

Also, somehow the MSM has equated "default" with not raising the ceiling (understanding it plays to their left way of thinking). 

The ONLY way to "default" is to miss a principal or interest payment on the debt.  These bonds unfortunately have no covenants to trigger a technical default.  We have enough revenues to service debt.  And maturing bonds can be refinanced with new bonds with zero change in debt outstanding.

Fri, 07/15/2011 - 15:19 | 1460504 mfoste1
mfoste1's picture

usa is sooooooo fucked.....

Fri, 07/15/2011 - 15:20 | 1460506 r101958
r101958's picture

"because there is no way to redress the fiscal problem with spending cuts alone"

Umhhh.....sorry, I disagree. If I had 2+ trillion in income, then I would find a way to live within that limit. It still seems that D.C. thinks that they can solve this problem with no pain and no political repercussions. That time is long gone.

Fri, 07/15/2011 - 15:25 | 1460532 SeverinSlade
SeverinSlade's picture

I'd really like to hear how the Fed launches QE3 with commodities (namely oil) trading at these price levels.

I'm just not understanding it.  Without further easing and stimulus the economy will drop (as it currently is) which will apply downward pressure to oil.  Inflation will likely [temporarily] slow and deflationary risks will re-emerge [until Bernanke launches QE3].  Am I missing something?

Seems like lately everyone believes that gold and silver will continue to rocket up from here without any dip leading into QE3. 


Fri, 07/15/2011 - 15:42 | 1460574 mfoste1
mfoste1's picture

youre not understanding it because it is sooo irrational. ok, it is very obvious now, that QEs did not work because the economy is entering into a liquidity trap(addtional liquidity is neutral in the MR and employment cannot be inflated). However, this is the current paradox: no one wants to buy US debt anymore, so the fed must buy treasuries to keep growth(if you want to call it that) going or face deflation because this is a debt based monetary system. So here are the options: 1. keep buying debt through QE to keep int rates low to sustain growth, eviscerate the currency completely 2. let the economy deflate(its current natural cycle apart from interventions) option 2 is much better in the LR because prices will have regressed to natural means and real growth can begin in the future.

America is a a very tough spot. do you want hyperinflation or deflation? because i can assure you one will happen, and it will probably be hyperinflation becuase the fucking idiots at the fed, washington and banks will never accept deflation. Deflation is a NATURAL ECONOMIC CYCLE that must happen for true growth to begin, why the fuck is the fed trying to fight it?

Fri, 07/15/2011 - 15:44 | 1460609 CrashisOptimistic
CrashisOptimistic's picture

There are no more cycles, buddy.  

Oil scarcity is not cyclical.  It doesn't replenish.

In the end, that defines everything.

Fri, 07/15/2011 - 15:52 | 1460647 mfoste1
mfoste1's picture

economies still operate withing natural cycles, when government intervention is not involved. Why would they not? its mathematics... is 2=2? sure commodities are becoming non-cyclical as scarcity nears, however, there is a longggg time left in supplies in and out of the ground.

Fri, 07/15/2011 - 16:36 | 1460842 r101958
r101958's picture

Crash...thanks for pointing that out so I don't have to.

Fri, 07/15/2011 - 15:46 | 1460617 TaxSlave
TaxSlave's picture

If they accept deflation (which they will have to when the currency stops being accepted for anything, anywhere), the already hopelessly, utterly insolvent banks will go bust.  They must keep pumping to try to put that day off.  It won't work.

Fri, 07/15/2011 - 15:48 | 1460628 SeverinSlade
SeverinSlade's picture

Maybe I'm just being an idiot (which is something I'm prone to).  I'm in 100 percent agreement with you and following you entirely.  The only thing I'm not getting is how gold/silver/oil continue to skyrocket when equities begin to sell off.  We all know that QE3 is inevitable unless Bernanke allows deflation to occur (which he has already demonstrated he will not).  But as Bernanke said yesterday, QE3 will not come unless conditions worsen considerably. 

So are you basically saying that as equities sell off, gold and silver buying will increase (even though treasuries will be open for business after Congress reaches a deal)? 

Maybe that's the irriational part you mentioned. 

Fri, 07/15/2011 - 15:58 | 1460673 mfoste1
mfoste1's picture

yes, think of AU AG as anti-currency. they will sell equities for usd, however, those usd have lost credibility no one wants them, they will immediately be diversified into PMs, chf(gold-backed). will snb intervene? yes, but only to slow the parabolic rise of the franc.

Fri, 07/15/2011 - 16:03 | 1460707 SeverinSlade
SeverinSlade's picture

Makes sense.  Seems like my analysis/understanding was flawed.

Fri, 07/15/2011 - 16:10 | 1460725 mfoste1
mfoste1's picture

think of a worst case nightmare


your investments? collapse

your currency? collapse

When people loose everything they have, and can no longer buy food, clothes, shelter, or get healthcare/SS because they govt has taken that away too, what will happen? id buy some arms and ammo while you still can....

Fri, 07/15/2011 - 20:38 | 1461356 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

The unwinding of $1,500,000,000,000.000.00 in derivatives will bury even the fed.


Tuco Benedicto Pacifico Juan Maria Ramirez

Fri, 07/15/2011 - 16:09 | 1460746 Re-Discovery
Re-Discovery's picture

The needle to thread for the Fed is 3% GDP growth, 4% inflation, and 8.5% (or below) unemployment.

Needs GDP growth to reduce deficit.

Needs 4 % inflation to educe govt debt.

Needs lower unemployment to keep his head.

If the Fed can get all of these, commodity price manipulation can continue.  QE3 is ALL about the unemployment rate.  When that gets over 9.5%, Fed will feel compelled to stimulate (in the absence of anything coming out of Congress.) 

He will simply HAVE to try his keynsian BS to grow employment.  He will then give up on inflation (remember, that inflation helps reduce the debt problem) and controlling commodity prices. 




Fri, 07/15/2011 - 17:08 | 1460944 treemagnet
treemagnet's picture

Yeah but if the euro experiment tanks the reserve currency gets strong and quick.  I hear what you're throwin down, but I think they're on vapors over in EuroDisney.

Fri, 07/15/2011 - 15:48 | 1460625 slewie the pi-rat
slewie the pi-rat's picture

tyler's intro is so pumped, who carez what rosie sez?

Fri, 07/15/2011 - 16:35 | 1460837 Catullus
Catullus's picture

What happens when the sell-off in bonds is the deflationary situation? I agree that something falling in price increases the demand, but if the fear is that they're viable stores of liquidity, then bonds are not going to find a bid until risk overall is repriced.

The Rosenburg position is the Geithner NY Fed position of 2008: the fed has guaranteed all debt everywhere. They're a permanent put.

BUT, all the fed buying in the world doesn't change the fact that if the Treasury stops paying interest on the bonds, the fuckers are in default. They're no longer usable as liquidity devices.

Overall, the Treasury is not going to default. There are enough people who know not to kill this thing.

If the republicans were a real party, they'd take the "lower the debt ceiling" not just refuse to raise it.

Fri, 07/15/2011 - 17:03 | 1460936 treemagnet
treemagnet's picture

Once full faith and credit is lost, rates rise, reserve status don't mean shit - so as long as we're the best house on a bad block we can print till hell won't have us.  But I'm going with full faith and credit as the the driver of this bullshit personally.

Fri, 07/15/2011 - 17:36 | 1461002 Wheatman
Wheatman's picture

So is rosnberg a moron or complete moron. The USA is systemic bankrupt so the bond market is doomed whether stocks go up or down. The dollar is imploding into a black hole making bonds worthless. The bond market will collapse David - period.

Fri, 07/15/2011 - 18:39 | 1461118 janus
janus's picture

Mr. Durden,

The only thing I could humbly suggest, and it seems to me that it may be better, is to replace, "a harbinger of things to come" with 'evidence we have tripped the precipice' or something along those feels as if we're in free-fall.  But i will defer to whatever answer you give.


Fri, 07/15/2011 - 18:59 | 1461152 Jovil
Jovil's picture

I was managing an American subsidiary of a successful large US Company in Mexico. It had been a financial turnaround for our team. Cash flow had accumulated in our bank in Mexico and corporate didn’t want the money repatriated to the US. Although we had already paid a 35% income tax to the Mexican government, we would have to pay an additional 30% exit tax to repatriate the money. In addition, we would have to pay high fees for the peso/dollar exchange, in order to make the transfer. The company wanted to expand our successful business and so we decided to keep the money in Mexican pesos to be used for further expansion. One morning, as my wife and I were on a trip driving on the highway, we heard a national message from the President of Mexico, Luis Echevarria, one of the most corrupt presidents in Mexican history. “It is a lie that we are going to devalue the peso,” he said.

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Fri, 07/15/2011 - 20:33 | 1461345 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Terrific info.  Thank you.


Tuco Benedicto Pacifico Juan Maria Ramirez

Fri, 07/15/2011 - 21:33 | 1461432 3rdWorldAmerica
3rdWorldAmerica's picture

The US is for sure one of the more complicated Ponzi schemes I've seen due to the "wrench in the works" being that ability to print currency. That makes the blow up much more difficult to predict and surely delays the crisis much longer that it would otherwise. I think congress had planned for a much longer slow ass Fu#$King% of the American people. What they didn't plan for is the rating agency pressures which even surprised me.

I think once the crisis occurs we'll look back in retrospect and realize it was the rating agency pressures that finally put an end to the Ponzi.

I'm certain we'll dodge the bullet this time but as we will hit the new debt ceiling (add'l $2.4T) much faster than anyone would think - and at that point the US credit rating will be cut sharply and the markets will of course slaughther this nation of greedy ass fu$%ckers who have lived beyond their means for decades and still today look at countries like Greece with their arrogant American attitudes and think it can't happen here!


Sat, 07/16/2011 - 03:47 | 1461801 darkstar7646
darkstar7646's picture

I disagree on the "no default, even with no debt ceiling" situation.

But not on the general thought process.

I believe the default occurs because you cannot service the debt plus do one of these two things:

1) Pay the entitlements
2) Ensure the safety of the productive once you can't/won't do #1.

The default comes from the extra costs forced when you cannot do one of those two things.

Sat, 07/16/2011 - 22:04 | 1462989 steve from virginia
steve from virginia's picture

I'm not sure I agree w/ Rosenberg on yields b/c there is far more private debt than Treasury debt in play. Govt debt services public AND private debt. Since a public deficit is a private surplus, the govt is keeping private debt from delevering.

A big part of GDP is debt service; it's what the 'finance sector' is. A shortage of funds to service debt regardless of cause means a giant problem, particularly since the private sector is unable to monetize its own obligations. It needs the Treasury/Fed combo to do this.

What does an economy do? Answer: it manages the flow of energy though the 'work' environment. Credit/funds are the means for allocating energy flows; credit cannot add to the flows but can only ration them.

In an ironic way, the debt ceiling argument is a discussion about energy conservation by other means. Whatever happens in DC, the energy flows will constrict. The establishment can buy some time or it can choose not to, but outcome will be demand destruction.

The difference will be whether folks can have a hand in the process or whether it will take on a life of its own.

Interesting, but the US could be car- free by the end of the year. If the US cannot buy foreign fuel that will be the result!

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